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The Open Source Agency (alternative title) The Intrapreneur’s Dilemma Managing Innovation Adoption in Complex Organizations by using Open Source Business Platforms Beta Version Simply put it is about management crowdsourcing '''and whether it can be a solution for the evolution of companies confronted with huge market disruptions. This is a draft of the thesis, so may that all the mistakes, spelling & grammar errors be taken lightly and ammended swiftly. Thanks! '''Introduction 1. General considerations I work for fifteen years in the advertising business and, while I think this industry is a fantastic melting pot of ideas and creativity, I consider that in terms of innovation adoption it is left behind by other industries, like IT, or healthcare and even FMCG producers. While lots of ad people talk the innovation talk, there are very few that really walk the talk. While we have seen tens of IT firms rising, falling and rising again in the last tow decades, changing radically their business models, disappearing or creating huge monopolies, still in the last 40 years of advertising we saw only incremental additions to the fundamental business models of the ad industry. Basically the most of those agencies remain essentially the same as 40 years ago. And it is true that this industry has seen no radical moves in the last 50 years, aside from the globalization of advertising and marcom industries and the consolidation of the advertising might within seeveral global groups of agencies. We do not have a revival story like Apple, or Mozzila, or a radical change like IBM, neither monopolies like Google, Microsoft or Amazon. It is an image driven business; rather short-termist and very often we see the selling taking over the content part. I like to say that advertising people are best at lying itself than deceiving the consumers as conventional wisdom would tell you. Harvard Business Review December 2009 edition, page 38 published a survey of the Top CEO’s of the world rated on the performance of their companies, on several criteria like the change in market capitalization and so on. There was no surprise to see Steve Jobs on top of the chart, but not seeing none of the star CEOs of the advertising global groups there was an anticipated dissapointment. Things have changed radically for the adindustry in the last 3-5 years due to the phenomenon that later was named Web 2.0. The technological disruption brought by the Internet, the fragmentation of media, the crisis of the ecosystem of the ad industry is heralding a radical change of paradigm. Although a fundamental change is in the air, let alone a bunch of startups, very few of the significant companies are experimenting with radically new business models. The last 11 years of my professional life I have spent in a large multinational agency, one of the big networks that dominates the ad world. I started in a local outpost and grew to a regional position in CEE, and this has offered me the opportunity to know a lot of offices from many very different countries across Europe mostly. Through my years in my company I have noticed the tension between the internal forces of change and the infinite capacity of the system to reject it. It is a phenomenon common to the Global Network Agencies that are dominating the market, not limited to a single company. Even in the recent years as the outside pressure has increased it is fascinating to see the lack of leadership and how little are doing the leaders of those companies to adapt to the frightening changes we are witnessing. Martin Sorrel of WPP mentioned in an interview last year his impatience with the leaders of WPP Group agencies and his frustration with the incapacity to increase the revenue coming from the online media market. "The people who run agencies tend to be of an older vintage - to put it politely… They tend to be resistant to change and want to spend the last three to four years of their careers traveling around the world rather than dealing with fundamental strategic issues on a daily basis." However, equally fascinating for me, knowing things from the inside is the entrepreneurial (or better said “intrapreneurial”) energy that is boiling in the local offices of these networks. In my experience I noticed that the best offices in the network, the most innovative, are also the most entrepreneurial. Those are offices that have a strong identity, culture and even systems and processes, sometimes proudly different that the network’s culture and processes. While they are based on a strong pool of local clients, they are also joint ventures between local firms and the network. I think the advertising networks in particular, (but I think we can enlarge this affirmation to complex organizations in general) know little about putting at work this immense internal force which is formed by the internal entrepreneurs. This thesis is inspired by the two contradictions. 1. The internal conflict between the forces of innovation and the systems’ natural trend to stability. 2. The external pressure the Internet is putting on both the ecosystems and the business models of the marcom industries. My intuition is that we can use the very model that stayed at the basis of the Internet revolution to overcome the current challenges the marcom industries are facing: The Open Source methodology and philosophy can be adapted to the management of large complex organizations in order to create companies designed to change and adopt innovation even when that requires fundamental rethinking of the business model. If we assimilate the Operating System(OS) of a large complex organization with the software that runs the organization we can say that the Open Source Company is the company that it is open to channel the intrapreneurial energy in order to re-write the Source Code of the Operating System. There are several notions that are crucial for this thesis. Open Source ''' It is a programming working methodology that means basically granting patent-free access to a piece of software, allowing any programmer to bring changes and eventually improve it. The Open Source movement has started in 1983 when Richard Stallman has created the GNU system as a reaction to Unix becoming proprietary, but the concept didn’t reach a tipping point until Linus Torvalds launched the Linux project. As a philosophy the essence of the Open Source idea is giving up on a traditional corporate model: patent protection of ideas. The second crucial component of open source is treating your business environment as an ecosystem. Innovation in one part of the ecosystem benefits everyone else involved. In this open source ecosystem only genuine innovation gets adopted, as the walls come down and everything becomes visible. Any new idea gets verified very fast. Real value contributors are the good guys. Free-riders and obstructionists are equally easy to spot. Despite the apparent commercial flaws (how can you sell competitively something that your competition can own and replicate?) Open Source history of the software industry has proven that Open Source companies have a long-term strategic advantage over their competitors. This is demonstrated by companies such as LINUX, Apache, and Netscape, a host of web-specific technologies such as Java, Perl, TCL, and a host of web-specific technology companies such as Sendmail. IMB successfully reinvented itself by giving up proprietary software making irrelevant competitors like Microsoft in the servers market. In fact open source is a great strategic tool in industries affected by commoditization. '''Intrapreneurs – „Back to the Garage“ Simply speaking this terms defines the inside entrepreneurs. They are people that take entrepreneurial initiatives within large organizations, often without being asked to do so. The Intrapreneurs focus on innovation and creativity and transform an idea into a profitable venture, by operating within the organizational environment. Those people lead internal initiatives, and fulfill projects sometimes diverging from the main strategic direction of the mother company. The term is credited to a 1978 paper by Gifford & Elizabeth Pinchot, but was later brought in the public use by Apple’s Steve Jobs in an interview referring to the Macintosh venture: "The Macintosh team was what is commonly known as intrapreneurship -- only a few years before the term was coined -- a group of people going, in essence, back to the garage, but in a large company." (September 1985 "Newsweek"). A lot of other successful turnarounds for companies have started like this, among them: Hetero Junction Chip at IBM, Playstation at Sony, Xbox at Microsoft, and DoCoMo at NTT. Crowdsourcing Crowdsourcing means literally outsourcing the tasks tipically performed by employees to communities of people. There is an increasing hype around the marcom industry about the idea of using crowdsourcing as a tool to enhance creativity and innovation, but as of we are writing this paper it is still restricted to the creation of advertising content and campaigns. Now the interest in the advertising for the concept is raising, as we can see in this Google Insight capture. An important distinction needs to be made here between Crowdsourcing and Open Source. While there is a certain overlap between the two terms there is no congruence of meaning. Crowdsourcing is a method, a process that aggregates contributions in Open Source projects. However, companies that use crowdsourcing and and free patent designs are not necesarily Open Source in terms of internal structure of the organization. In the last On the other hand, Open Source as a working methodology in programming selects from a specialized audience, h Cathedral and the Bazaar This seminal work of the Open Source Movement from ist enthusiastic Operating System (OS) Incremental versus radical Innovation There is an important distinction to be made between the two forms of innovation adoption. Clayton Sustainable vs discontinuous Innovation] The Free Economy Unnovation Corporate Hackers The Half-Life of Knowledge Wikipedia describes the Half-Life of Knowledge as "the amount of time that has to elapse before half of the knowledge in a particular area is superseded or shown to be untrue". The concept is attributed to the economist Fritz Machlup. The term is used in the programming business, where is it assumed that the half-life of knowledge is 18 months. We wondered, and we have adressed this in our research, what is the half-life of knowledge in the advertising industry. In the software industry the lifecycle of a business is much shorter than in other industries. According to Clayton M. Christensen (Innovator’s Dilemma, Kindle edition, location 260-64) „Those who study genetics (and evolution) avoid studying Humans. Because new generations come along ony every thirty years or so, it takes a long tome to undertsand the cause and effect of any changes. Instead they study fruit, flies because they are conceived, born, mature in a single day. Similarily If you want to understand why something happens in business study the disk-drive industry. Thoe companies are the closest thing to fruit, flies that the business world will ever see.“ As we are moving towards a more digitalized world, we in advertising are going to become subject to increasingly shoter lifecycles pretty much as the IT industry and hence I think it is wise for my research to study the innovation adoption within the advertising domain in comparison with the the same innovation adoption in the Industry background The advertising industry is dominated by several holding companies that are reuniting the major Global Advertising Agencies Networks along with other media and marketing and services. The leading groups Omnicom, WPP, Publicis, Havas, Interpublic, Dentsu are incorporating agencies like BBDO, DDB, TBWA, Ogilvy, JWT, Grey, Y&R, Publicis, Leo Burnett, Saatchi&Saatchi, Euro RSCG, McCann Erickson, Lowe, Draft FCB, Dentsu. Through the years the basic business model of the ad agency has slightly evolved from a percentage for the media advertising space commissioned by the agency for the client, to the fee based system where agency is selling “time” it uses for creation of the adverts. The two models are basically outdated as they proved their flaws so far: both are a source of perverse incentives basically motivating the agencies to be inefficient in both the use of media space, and the time they allocate to their clients. Commoditization of the offering and the pressure for media efficiency are putting a constant pressure on the agencies’ margins and we are witnessing a constant diminishing of those in the context of the current crisis. You would expect advertising agencies to be the avant-garde of the innovation in their field, but in fact they are heavily managed, large complex hierarchical structures devised as distribution systems for the global expansion of clients like Coca-Cola, Pepsi, P&G, Unilever, etc… They are immensely successful financially, but this is also their biggest weakness. They are very good at capturing value, but weak in terms of creating value for their customers. The central hubs are concentrating a lot of budgets and power, while the local outposts are used mainly for the distribution and amplification of the campaigns created at the centre even they have similar structures as the central hubs. There are small economies of scale as agencies are delivering a non-standardized product, while every market is unique in its own way and clients are requiring personalized services from the local subsidiaries of the network agencies even for the centrally produced campaigns. There are certain economies of scope, as the local subsidiaries are using the experience accumulated with global clients to attract local ones. In order to be competitive on the local markets subsidiaries must base their business on local clients, which are offering more opportunities to develop agencies locally. There are little differences between the competing agencies either in the value chain management (which works basically the same for all major networks) or in the tools they are offering. When they are competing directly it all comes to the quality of work All the agencies have similar sets of tools and only differentiators are concepts that enhance the perceived value agencies deliver (Love marks for Saatchi’s, Media Arts and Disruption for TBWA) but in fact agencies are not offering radical differences. In other words there is no Google in the agency business. But can there be one? The Haute-Couture Agencies There are several segments of agencies that really walk the talk of innovation. “The Chaos Scenario” In his latest book, Bob Garfield, the editor of the North-American trade magazine, “AdAdge”, is describing the world after the Technological Armageddon that is breaking havoc among the media and marcom industries. He is describing how the entire ecosystem of the marketing and advertising industry is falling apart. The problem being the disruption brought by the Internet, making the current business model of the Large Media companies obsolete. They proved incapable to monetize the changes brought by the digital revolution and the new platforms of distribution of media content. Newspapers are among the worst hit, after they have embraced enthusiastically the Internet as a free distribution platform only to realize few years later that the revenues the internet advertising is bringing cannot compensate for the loss of classifieds and of the traditional advertising. Garfield says: “The toll will be so vast -- and the institutions of media and marketing are so central to our economy, our culture, our democracy and our very selves -- that it's easy to fantasize about some miraculous preserver of "reach" dangling just out of reach. We need "mass," so mass, therefore, must survive. Alas, economies are unsentimental and denial unproductive. The post-advertising age is under way. This isn't about the end of commerce or the end of marketing or news or entertainment. All of the above are finding new expressions online, and in time will flourish thanks to the very digital revolution that is now ravaging them.” Newspapers, magazines suffer the most visible and rampant value destruction, but also, Broadcast stations, TV Networks and Cable alike. He concludes claiming that the mantra of the new media is: "We have the audience. All we need is a business model." while the only commandment left is “Thou shalt monetize”. “Crisis of consumerism” The current crisis is the third aggravating factor in this landscape opening the eyes of many over the unsustainability of the consumerist system with an entire array of consequences from the catastrophic effects of global warming, to the destroying of entire ecosystems that are supporting the externalized costs of the developed countries. Even Martin Sorell in of his interviews is stating “consumption put us into a hole”. The Issue We see the Advertising Global Networks confronted with a threefold crisis. Firstly a crisis of identity on the trend of increased commoditization and media fragmentation, secondly a crisis of the media ecosystem that puts under question the current revenue models of both media and ad agencies, and finally a crisis of sustainability of the consumerist economy. Dinosaur’s Exemption In this context is it possible that complex and dinosaurian organizations such as those agencies can step up the innovation adoption without jeopardizing the current revenue streams. Is there any chance that the BIG AD NETWORKS can save themselves by reinventing their current operational and business models? Can they transform themselves in outposts of innovation rather than smug spenders of their inheritances? In particular, I am interested whether complex organizations can capture the internal entrepreneurial spirit in order to innovate and whether they can use their outposts to create innovation hubs in order to evolve into different, more competitive companies. The Hypothesis There are a couple of questions I will try to answer in this paper: #If and How Analogue Ad Agencies can save themselves from the Digital Armaggedon? #Intrapreneurship within an „Open Source Business Model“ is a valid solution for disruptive innovation adoption within complex organizations like Multinational Ad Agencies? Should agencies use Open Source models of management in order to stimulate „discontinuous“ innovation adoption. More specifically, if we assimilate the Operational Model of a corporation with an Operating System (OS, as in the software jargon), I want to find out if opening the source–code of a complex organization to peer-to-peer contribution will lead to an increase of the innovation adoption. The Happy End of this document will be to see if and how the salvage of the media&advertising industries can come in from the same technology that has unleashed the mayhem in the first place, alas in a surprising way. Open Source Model and philosphy might offer an inspiration and viable alternatives for the Digital Immigrants of the adindustry. Innovator’s Dilemma In his book, Clayton M. Christensen makes an analisys of innovation adoption in complex organizations. His interest goes around the failure of firms to adapt to market changes and stay atop of their industries. He studies sucessful, „well managed companies that have their competitive antennae up, listen astutely to thier customers, invest aggressively in new technologies and still use market dominance.“ Mr. Christensen does a research across three industries that have different innovation adoption rates: the disk-drive industry (one of the most dynamic sectors where generations change the most often), the construction equipment industry (where generations took as much as thirty years to change) and the steel cast industry. His findings are amazing being equally counter-intuitive: he concludes that what kept those companies from adopting the next winning technology is exactly what made those companies succesful in the first place: „good management, astutely listening to their customers“.'''When their clients have requested the new technology and have a structure to adopt it and benefit from it the companies have succeeded. All the cases of failed innovation adoption regarded technologies that where irelevant for the incumbents and for their clients for the reason they offered inferior margins to existing ones, or they were simply requiring different business models not approachable by the incumbent companies. Mr. Chrsistensen distinguihes here between „sustaining“ and „discontinuous“ innovation trying to separate the two types of innovation adoption stories, rather than the less relevant „incremental“ versus „radical“ innovation distinction – sometimes a radical innovation adoption process can be sucessful, IF the customers require it. When that innovation is „discontinuous“ even if „incremental“ then it can be a major disruption factor for the incumbent industry. To explain the failure to change and adopt the new technologies Mr. Christensen introduces the concept of „Value Networks“ which reunites the complex value chain built around satisfying the client demand and the business model that helps firm capture part of the value created. He claims and proves that the incumbent companies are tributary to their value networks and thus incapable of changing IF their clients do not request it. Concluding he throws on the table the theory of „resource dependence“, a theory rather accepted in the cirlces of biology scholars rahter than the marketing ones. This theory supoports the primate of those that control the resource allocations in a company value networks – the customers and the shareholders – versus the managers of the companies. The discovery of „Innovator’s dilemma“ is shaping the way we will organize our research. I find it relevant for the adindustry that we are going through a major technological disruption – the advent of the internet and digitalization of our lives. That affects the ad ecosytem firstly affecting directly the relevance and revenues of the media, then the effectiveness of media messages, and lastly the relevance of the adagencies. The new technology has all the ingredients of a „discontinuous“ change by the book of Mr. Christensen: it is immature – still in the making, there are few models to monetize it (Google being one of the few, but look at the giants like youtube, Facebook, Twitter) offers lowers margins than the old interruption model, and serves the underserved adclients that were situated downmarket from the beneficiaries of the old system (small companies represent the main source of revenue from Google click-ad business* (here I would need some third party data). How do you recognize if a market is ready for a disruptive technology? First is an oversupplied market. „Historically the performance oversupply opens the door for simpler, less expensive and more convenient and – almost always disruptive – technologies to enter.“ (''Clayton M. Christensen, Innovator’s Dilemma, Location 2535-39 on Amazon’s Kindle) ''Secondly the new technology it’s improving faster than the incumbent technology. Then they hardly can be used in mainstream markets; Fourth „they offer a set of attributes that is orthogonal“to those of the existing technologies (''Clayton M. Christensen, Innovator’s Dilemma, Location 2472-76 on Amazon’s Kindle).''Lastly, it serves a new market than the incumbent ad agencies do not serve usually an underseved market. '''Google – The good enough Advertising Agency Looking back at the ideea of performance oversupply we realize that the solution in an oversupplied market is exactly the „Good Enough“ concept metioned by Robert Capps („The Good Enough Revolution: When Cheap and Simple Is Just Fine, Wired Magazine, 08.24.09, page 48-52). Mr. Capps mentions a series of disruptive technologies that are performing really well on a series of over-supplied markets. His examples include the Skype, the Flip Camera, the netbooks, or the MQ-1 Predator drone plane that offer much cheaper, and less sofisticated alternative products in oversupplied markets like long distance calls, video cameras, laptop computers, or combat airplanes. Those technologies are doing the a good enough job, for much less than their highly evolved competitors. It is interesting that in advertising case Google’s business model emerges as having all the ingredients in order to qualify for a „good enough“ ad agency: „They're not high-concept, and they don't feature celebrities (or even pictures). But text-based ads are highly targeted, incredibly cheap to produce, and make up 90 percent of Google's net revenue (and 45 percent of all Internet ad sales in the US).“(„The Good Enough Revolution: When Cheap and Simple Is Just Fine, Wired Magazine, 08.24.09, page 48-52). Intrapreneur’s dilemma Our intention here is to expand Mr. Christensen hypotesis and check how and if it applies to the analog advertising industry. The task it is complicated even more as the disruption the internet is bringing is non-linear, compared to those within the most advanced sectors researched by Christensen. For example in case of the disk drive industries the technological evolution is largely foreseeable in respect of Moore’s law of computing. (Moore’s law proclaims that every 18 months the capacity of processing per square unit of surface double itself; the law was empirically proven right so far, but many are saying that it works both as a pressure factor and a self-fulfilling prophecy for the advancement of the computing sector.) We can tell looking in retrospect that one knows what direction the technologies will evolve, of course it will not know what are the uses and business and monetization models for those technologies. Comparatively the directions in which the communcation world will evolve due to the advent of the Internet and the digital world is rather non-linear as it can be affected by the advances in the computing power, but also of those in the software development; by the apparition of new web platforms like Google and Twitter and Facebook, but also by the advances in hardware platforms like Apple ipod, Amazon’s Kindle and Google’s Android. Never in the more than 100 years of ist existence the Ad business was confronted with such a radical and complex competitive landscape and ecosystem where we see companies form the avantgarde of the IT industries emerging as strong complements, substitutes or becoming suppliers and clients of the ad agencies. Apple is a fantastic example of a company that less than 10 years ago was limited to the hardware desktop industry and now is emerging as a substitute for entertainment distribution companies (through iPod), a platform for mobile marketing (iPhone) and a possible supplier and saviour of the publishing companies (iPad) being in the same time a supplier, a client and a complement for an advertising agency like TBWA. So, our first question (if the ad agencies will find a way to survive the Digital Armaggedon) can be reformulated in a more scholarily fashoin: „How are Ad Agencies going to deal with the disruption multiplied by complexity the Internet and digitalization are bringing? Is the liniar liniar value chain model imagined in the fifties capable of adapting to the non-linear explosion of complexity of the XXIst century Internet?“ The „Intrapreneur’s dilemma“ is a trying to move further Mr. Christensen’s theory and wants to find out if intrapreneurial initiatives are a valid solution for succesful innovation adoption within complex organizations like Ad Agencies. Natives versus Immigrants We will make the distinction between the beneficiaries of the new technology, companies that have been „born Digital“, like Google and Facebook and the representants of the old model: the McCanns and DDBs of the world. Research structure We will do a review of the strategies the Immigrant Companies in advertising business are deploying in order to adopt and to adapt to the new disruptive technologies. We will also do a comparative case study analisys of several Digital Native companies against several Digital Immigrant companies on how they are dealing with the innovation adoption. We know that the Digital Native companies are dealing with a much shorter half-life of knowledge and my interest goes towards what can We, as Ad Agencies can ;learn from them in respect to the innovaton adoption. I will do in-depth interviews of intrapreneurs/innovation leaders from the two kinds of companies and try to find out what distinguishes them, what was the reason for sucess or failure and whether their companies are offering or not a structure to support them was an explanation for their outcome. Category:Browse